Parexel posts huge bookings & begins another hiring spree

By Nick Taylor

- Last updated on GMT

Related tags Equity analyst Marketing Strategic management Parexel

Parexel posts huge bookings & begins another hiring spree
Gross bookings at Parexel topped $1bn in the third quarter but the need to accelerate hiring again led to a cut to earnings guidance.

In the third quarter Parexel nearly doubled analysts' gross booking expectations by winning $1.1bn (€837m)​ of business. To put the figure in context, Icon, which won two big deals from non-strategic clients and, like Parexel, benefits from Pfizer's business, had quarterly gross bookings of $485m.

The logical question is how Parexel could be winning this much more work than its similarly sized competitors. Technology and geography are two reasons. Price could be a third, although Parexel has no reason to discount win​”, DavidWindley, equity analyst at Jefferies & Company, wrote.

Speaking to investors following the results, Josef von Rickenbach, CEO of Parexel, said 70 per cent of the business wins came from strategic clients. Business with mid-sized and emerging clients also improved.

Winning so much new business strongly suggests Parexel is increasing outsourcing penetration and taking market share. The gains are most likely coming at the expense of smaller CROs (contract research organisations), Tim Evans, equity analyst at Wells Fargo, wrote.

Having taken this share the next step is to keep hold of the clients. “Market share is likely to be sticky​”, Evans wrote, but this will depend on Parexel satisfying the clients, particularly in the early days of the relationship. 

Our work with the Avoca Group showed that ensuring client satisfaction and project stability in year one is extremely important, so the investments are appropriate in light of the backlog growth​”, Windley wrote.

Rickenbach pointed to improving customer satisfaction as evidence it can maintain quality during the period of rapid growth and keep hold of its clients.

Financial drag

Investments will drag on performance through the rest of the calendar year though. Rickenbach said Parexel hired 635 people in the third quarter and expects to bring on a similar number in the current reporting period.

Parexel is considering using temporary staff to support its permanent employees but is experiencing some labour inflation. The weighting of the business wins to the US is playing a role in the inflation.

John Kreger, equity analyst at William Blair, wrote: “While we are not surprised by some loss of margin as management strives to hold quality in the face of more than 30 per cent growth in backlog, we are surprised that the result will be an absolute reduction in sequential earnings over the next three quarters.​”

Related topics Clinical Development Phase III-IV

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